Sunday, June 8, 2014

US consumer and domestic stimulus reducing risks to China's economy

American consumers are helping to pull China out of its economic malaise. The recent credit card driven spending surge in the US (discussed earlier) sent China's trade surplus to new highs. The trade balance clocked at almost $36 billion (vs. $23 billion expected).

Risks surrounding China's credit markets, stemming from property developers and "wealth" products, will persist.  However Beijing's stimulus efforts, combined with increased US consumer spending, should keep China's economy avoid a more severe slowdown.
Scotiabank: - China’s economy is on the mend compared to concerns that spanned the winter months.
As the government increases spending on targets including railways and broader infrastructure and the People’s Bank of China lowers reserve ratio requirements and injects fresh liquidity into markets, the policy bias in China is to take out insurance against further downside risks in an effort to preserve its 7.5% GDP growth target. Default risks across China’s shadow banking sector remain material over 2014H2 but improved fundamentals may be a significant offset from a market standpoint.

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